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Am i right in thinking that if i buy something i need to do my work (ie a set of Ladders), the full amount is tax deductible? or is it only 20% of the amount?
Where some people get confused is that only 20% of that amount actually comes off your tax bill, as you pay 20% tax.
So some people think I'll buy these ladders for 100quid, that'll save me £100 on my tax. But as you claim that 100quid as an expense, the £100 comes off your profit, on which you are taxed 20%. So the saving off your tax bill is 20quid, not 100quid.
Hope I haven't confused you more! From ur question, it seemed you might be wondering that kind of thing.
say you claim £1000 as expenses this takes off £200 off your tax bill of which you pay 20% ?
so if you turn over say 10000 a year and claim 1000 as an expense your taxed at 20% on anything over £8,105 that you earn so
your tax amount that you would be taxed on would be 20% of £1895 minus the £200 off this amount for the expenses which is £1695 so your taxed at 20% on this amount which would be £339 for that tax year.
so if your expenses where £1000 and you turned over £10000 for that year you would of made £8661
is it really that simple or have i done something wrong here ?
this is oviosly an example just to get a feeler out there lol
If you turn over £10k, and the tax free allowance is £8000 (I know it's not exactly but to keep it simple). Take off your expenses which is say £1k, then you are taxed (at 20%) of the remaining £1k, which is profit.
Yes, there's always a 'personal allowance' of tax free earnings, whether your self employed or employed. This year 2012/13 it's £8105. It normally rises each year.
And no, your wage isn't an expense unless your a ltd company and technically employ yourself. You dont take a wage if you're self employed.
P.s. lads, there is an online course you can do on hmrc website for the newly self employed. This is stuff you rly need to know so I'd recommend the course.
your turnover minus your expenses = your profit. Any profit over the £8,105 is taxed at 20%
So if your turnover is 10k and you spend 1k on expenses your profit is 9k, you are allowed to earn £8,105 before tax so the amount taxable is £895, 20% of £895 is £179. So your tax bill in this instance would be £179.
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